Abstract – Policies designed to reduce inequality may fail because socioeconomic strati_cation can reappear through the private school system. We develop a theoretical model linking the skill distribution of the student population to the pro_tability of private schools. We use panel data of Brazilian municipalities to examine the relationship between test scores dispersion and private school entry. Bolsa-Familia, an important conditional cash transfer program, is used as a source of exogenous variation for the test scores’ dispersion in the public system. We show that towns where the students’ skill distribution widened because of Bolsa-Familia were more likely to attract new private schools.

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